When “getting them off your back” results in a legally binding trust.
The High Court heard a case relating to the rescinding of a Declaration of Trust due to the settlor's fundamental mistake.
Background:
Patrick Sullivan died on 1 June 2021. He had owned a property at 24 Stanley Road in Bromley comprising a house, a separate maisonette, and a yard with an office. Patrick had acquired this property with his first wife, Priscilla Sullivan, as beneficial joint tenants. They had two children, Stephen and David. Priscilla occupied the house, while the maisonette was rented out, and Patrick had run his roofing business from the yard and the office.
Patrick and Priscilla's relationship had ended in separation in the 1970s. Patrick subsequently met Susan in 1976 but remained married to Priscilla until her death in 2008. Susan and Patrick had two children, Kerrie and Holly, and were married in August 2009.
Priscilla died intestate, and Patrick and Stephen were appointed as joint administrators of her estate. A dispute arose as Stephen and David were unhappy that Priscilla's half share of 24 Stanley Road had passed to Patrick by survivorship. In an attempt to appease his sons without making immediate disposals, Patrick, with the assistance of his partner (and later wife) Susan, sought to create a non-binding "Declaration of Intent" regarding the future distribution of his assets upon his death.
Susan, who was working at the time for Manches, a firm of solicitors, enlisted the help of a legal executive within the property department. What transpired was the creation and execution of a formal Declaration of Trust in July 2009, relating to the bulk of Patrick's property portfolio. However, the crucial element here, and the foundation for the Court's decision, was the compelling evidence that Patrick had fundamentally misunderstood the legal nature of the document he had signed. Both Susan and Patrick believed they were creating a non-binding indication of his future wishes, something he could show his sons to "get them off his back". They had no legal expertise and, importantly, received no advice explaining that the Declaration of Trust would create a binding legal obligation, effectively divesting Patrick of beneficial ownership of the property during his lifetime.
Decision:
The High Court heard various evidence and found compelling evidence that Patrick did not appreciate that by signing the trust, Patrick was no longer the owner of the property. This misunderstanding was compounded by the fact that a draft will was prepared around the same time, while a later will and memorandum of wishes executed by Patrick contained provisions which were inconsistent with the existence of a binding trust. Even the solicitor who drafted the trust appeared to have been operating under a misapprehension, failing to advise on its implications and drafting subsequent documents that contradicted its effect – a point the Judge called "extremely poor practice".
Applying principles of equitable mistake as clarified by the Supreme Court in Pitt v Holt, the Court found that Patrick had indeed made a distinct and serious mistake about the legal character and nature of the transaction, resulting in an injustice. This mistake was central to his decision to sign the document.
In light of the clear mistake and the potential for a significant injustice, the Court had no hesitation in ordering the rescission of the Declaration of Trust.
Implications:
This case underscores the absolute necessity for individuals to fully comprehend the legal nature and consequences of any document they sign, especially those relating to property and trusts. What might seem like a simple gesture or a way to appease family members can have far-reaching and legally binding effects. This case demonstrates the Court's willingness to use its equitable jurisdiction to rectify mistakes, particularly when they are fundamental to the transaction and lead to unjust outcomes.
While the intention behind the trust was informal – in effect, a non-binding assurance – the document created was anything but informal. The Judge was critical of the lack of advice provided regarding the Declaration of Trust. This reinforces the paramount duty of legal professionals to provide clear, comprehensive, and easily understandable advice to clients about the nature, implications, and potential ramifications of the legal documents they are asked to sign.